Google announced the testing of a new pay-per-action, or PPA, advertising product today. It’s important for a number of reasons, not the least of which is the fact that Google controls so much of the online advertising market that just about anything they do in advertising has real consequences around the Internet.
Background
Until now, Google has primarily sold cost-per-click, or CPC ads. Advertisers pay a fee when someone on Google or a Google partner site clicks on the ad and is delivered to a web page designated by the advertiser. Advertisers like this because they only pay when a potential customer is in their hands. They don’t like it because of click fraud – publishers and advertiser competitors have an incentive to click those ads and generate revenue (or just cost to the advertiser). Since Google has a short term financial incentive to actually promote click fraud, there’s been a lot of debate around the subject over the years.
PPA advertising is meant to mitigate the risks of click fraud. Now the advertiser pays only if a customer has been delivered to a website and takes a further action, such as buying a product or filling out a web form.
Like CPC ads, PPA advertising wasn’t invented by Google. Search engine Snap has been selling ads this way for some time, for example. Another startup, Turn, is also in this business. As are others.
PPA requires an additional level of complexity in the ad network as well. Previously, Google delivered a user to a website, and sent a bill for the click. Now, Google needs to verify that an “action” has occurred by receiving confirmation back from the advertiser.
The advertiser will of course have an incentive not to confirm the action, but Google will be able to easily adjust for this. Like CPC ads, PPA ads will be ranked by profitability to Google. Google need only calculate the average value of a click to a PPA advertiser, and those ads can then be ranked by profitability. CPC and PPA ads could even be mixed, although Google isn’t doing that yet.
Consequences
This won’t affect big advertisers much, because they already track ROI on CPC advertising very closely. For smaller advertisers though, click fraud can wreak havoc. The ability to largely filter out click fraud will help them track ROI much more closely that they previously could. This will be a big help for them.
Affiliate marketing networks like Commission Junction and LinkShare are screwed. These networks also operate on a cost-per-action basis, mostly with online retailers. Even though some of them have scale, they will not have the ability to compete with Google on sheer size of network. Advertisers flock to volume, which drives average pricing up. When prices increase, publishers flock to the new platform because they’ll earn more. Look for serious publisher leakage from the big affiliate networks over time as this new product scales up. If you want to argue this point, note what happened to the stock price of Commission Junction’s parent company, ValueClick, today. And that’s even though the market has largely adjusted for this news already – this move to add PPA ads has been rumored for some time.
This should be good for Google’s overall market share and long term revenue growth. Anything that drives fraud out of the network will get advertisers to actually spend more money, not less, as their ROIs increase.
And Yahoo is now in the unenviable position of playing follow the leader again, even as they catch their breath from the massive Panama release earlier this year.
Oh Yeah, Google Also Released…
Google also announced a new “text link format” ad unit today. This was mentioned in the fourth paragraph of the blog post (not exactly highlighted), and is also discussed in the PPA product FAQs:
What is the text link format for pay-per-action ads?
Text links are hyperlinked brief text descriptions that take on the characteristics of a publisher’s page. Publishers can place them in line with other text to better blend the ad and promote your product.For example, you might see the following text link embedded in a publisher’s recommendatory text: “Widgets are fun! I encourage all my friends to Buy a high-quality widget today.” (Mousing over the link will display “Ads by Google” to identify these as pay-per-action ads).
Though the maximum length of a text link is 90 characters, we’ve found that shorter links perform better because they allow the publisher use the link in more places on her/his site and in different context. The maximum length is 90 characters but less than 5 words is best. Even better, just use your brand name to offer maximum flexibility to the publisher.
No longer will Google ads need to be confined to their own space on the site – publishers can subtly embed ads right into hyperlinks within the main content of the site itself (see second paragraph of quote above). Other companies already do this, but Google has never tread into the “advertorial” space before.
They’ve crossed a hazy ethical line here. If this product was announced on its own, it would be heavily debated by the blogs and press. But by burying it in other, bigger news, they’ve mostly avoided the critical analysis that this actually deserves.
This would only work for sites that actually sell something right on their site. I wonder how Google will track that. A lot of sites don’t actually sell something or have an ‘action’ that can be defined this way.
I do like the new ad format and hope it will become available for normal links too.
I don’t really think CJ and LinkShare are screwed. Stock price is one thing, but I’ve worked with both for 3+ years and millions upon millions of dollars in sales (vastly smaller revenues to me), and there is a ton of room for competition beyond just volume.
I’m not saying Google or anyone else can’t beat them. All the affiliate management companies could use a lot of work. But the service is a lot deeper than what Google normally provides.
Beyond that, the competition for payout spans affiliate networks. Most people have accounts across all the major ones, it’s not like we cancel our LinkShare account because we also use CJ. Usually choices are made by vendor in our case, and the payout we receive is compared regardless of the network. CJ has been the biggest for a while, but I haven’t seen all that much pressure on others to leave places like Performics for them.
For smaller publishers, I can definitely see this Google PPA being big fast, probably it will be easy to sign up and get started. But for large publishers I don’t know, just announcing a product line doesn’t make it the best. After Google Checkout I have less confidence that Google always has a good user experience anyway.
Kewtr – Google is going to eat them alive.
Almost two years on, wondering when this is meant to happen.
Mike, i think the 2 other benefits that CPA/PPA brings to the table for merchants are:
1) greatly reduced complexity in calculating profitable traffic — click-fraud aside, the much more prevalent issue is feature complexity. previously, SEM campaigns charged on CPC/PPC basis require analysis to determine which keywords & copy generate traffic that converts to sales, and at what conversion rate — which could be profitable, or unprofitable, if you’re not careful.
2) greatly increased flexibility in willingness to pay higher margins for advertising, since all costs are guaranteed to result in sales — now, since as a merchant i know i only pay for actual sales, my interest in CPA/PPA advertising goes up dramatically. i don’t have to worry about ad costs as much, so i’ll turn on the flood gates… in fact, i’ll even pay higher ad costs to get incremental sales. if my margin is $10, and previously i wasn’t sure if my traffic would convert to sales, i might play it safe and “bet” up to $5 in CPC-based ad costs. but now, i’d be willing to pay up to $9 in CPA-based costs, and still generate a profit. this plays well for both merchants & google, since the result is increased transparency & higher sales.
the only problem with previous CPA-based attempts have been complexity and limited inventory. Google certainly can solve the latter problem, and potentially if the new product works, they’ve solved the complexity issue as well.
… and the internet advertising revolution rolls on
How does Google and other CPA systems avoid ‘action fraud’? For example, couldn’t a website simply not include the google tracking javascript for every second customer?
Tim, you are right in saying this but as I understand it Google will show merchants ads based on how much Google is going to earn from them.
So a site that withholds some sales from Google will be giving a lower return so won’t get as much traffic.
http://www.iphone-3d.com
I think Google PPA, CJ and LinkShare can all co-exist.
ppa sounds like a logistical nightmare to me. any chance it will be to hairy to catch on?
Would someone email me (john@gigatribe.com) with a link to that Pay-per-action page? When I go to the adwords page I can’t find it! Maybe because I’m trying to access the page from Europe and the service is unavailable here?
I think you are wrong Michael. Google will be a big player, but they can´t destroy the whole competition, because they don´t deliver for all users the best possible system. Or should a search engine spammer use Google cpa? Furthermore at the moment Google cpa is a very inflexible system. No product data, no possibility of creating own text links.
Well, the thing about CJ and LinkShare is they don’t end up making you a lot of money. After years of rotating in AdSense and various affiliate stuff from CJ, LinkShare, as well as Amazon Associates stuff, we finally threw in the towel. It’s wall-to-wall AdSense now, other than some page views we’re giving to the Yahoo Publisher Network beta. We had being dependent on one source of income — but we need the money, and there’s a big difference. Maybe this depends on your vertical, but I suspect the people who are making the same from AdSense and from affiliates aren’t making much from either, i.e., they’re not in a lucrative vertical.
Well, here comes the next generation Microsoft.
I don’t agree with Mike this time that Google will eat CJ and Linkshare. Beign dealt with lots of affiliate networks and Google as well , there is a big difference between how Google treats people who earns them money (Adsense/Adwords clients) and publishers on Affiliate Networks. AN are dealing with clients personally and often offer advice. Google has almost not existing support. THey cannot run CPA ads with the attitude like that. I can see Google CPA ads only a competitor to Adsense. Any serious affiliate website will not depend on Google choosing the CPA product on their website based on keywords – publishers want to have a control over what products are on the page.
Google seems to think it is just advertisers market. Google simply displays whatever ads it likes without asking the publishers if they want to display PPA or PPC or PPM. But there are scenarios where publisher holds the power ( limited unique inventory of ad space) but sells it dirt cheap for technical reasons. While the advertiser makes hundreds ( or even thousands ) of dollars on a sale, publisher gets fraction of a dollar even though he is eligible for much bigger share of the revenue. Google must allow publishers to set a cut-off for advertisement rates, below which ads will not be displayed. This is needed especially for branded publications which dole out a fortune for building reputation. Some people use this loop hole as a low cost PPM opportunity even if it is PPC. Some one is going to launch publisher focussed ad products. Google is not giving enough importance to brand building advertisement where impressions are more important than the actions.
Oh yes! We like that! But as always the new services will be everywhere except Greece… Here we are still sleeping….
Advertorial is already an issue on the net. Most novice Internet users don’t even know that Google ads are actually ads. I sat down with a few users at a meeting and watched them navigate a few sites. They don’t have a clue. It was a wake up call for me to see how little most people know about the Internet.
Although it’s easy to see how a PPA model might be attractive to VC money looking for a new home in the now burgeoning online advertising sector, it’s important to point out that this alternative model isn`t without some sizable flaws of its own.
Firstly, I have difficulty in accepting a business model that is based on bids per sale rather than per click. As its web site conversion rates that will ultimately determine the revenue earned by the search engine. It’s one thing to source quality traffic, but a whole different thing to make an online sale. Its rather insulting to the web analytics industry as a whole, to imply that all web sites make the same level of conversions. The complexities of sites that convert and those that don`t is already well documented.
Secondly, tracking of sales themselves is an extremely complex topic. Having spent 10 years in the industry using a wide range of analytics packages, I can tell you that nothing is as black and white as the software vendors would have you believe. In a percentage of circumstances a sale will occur on a first visit to your web site, but a much greater degree will occur on a different date in the future. Aside from the fact that tracking subsequent visits is potential hampered by current or future privacy laws, a much greater issue is in the nature of purchases habits themselves. People are increasingly browsing from one machine and purchasing from another, whether it be from the home, office or mobile device. Accurately tracking these purchases is all but impossible.
As an online advertiser and publisher in a highly competitive environment, I can completely understand the attraction of a new model that would help solve all my problems. The reality is never quite that simple. Even assuming this model actually gets real traction, it’s only a matter of time before market forces drive up the cost of sales to the same levels as those within PPC models. After all, if the current CPC market can bear these costs of sales now, why won’t it tolerate them in the new marketing model? Just as in any broad marketing environment, you will be competing against the very same businesses with rival products, services and web sites. The same market participants means the same result, no matter the mechanism you use.
Conversion tracking already exists for Yahoo and Google. That’s what you hired a SEM consulting firm to provide: live automated tracking which calculated ROI and adjusted keywords on the fly. But now that Google has brought that in-house (to some degree), it makes their offering much more valuable. This is a huge win for google, and a loss for the SEM firms.
This will hurt CJ and Linkshare but I don’t they go to the deadpool.
But of these companies are very well known to publishers and are widely distributed. Moreover, they both have deep integration with their client retailers (better tracking).
What is Google’s compelling value proposition above the incumbants that will cause a retailer to switch?
Google will run down the competition if they will release an API for this service of theirs.
I love your site Michael, but you really don’t understand the affiliate marketing space. Publishers who succeed as affiliates don’t use contextual ads or even use the stock ad units the merchants provide — they make money by carefully structuring the merchant’s message to fit their audience and/or building a new business model around it. In fact, when CJ tried to switch to JavaScript based ads the affiliates had an uprising and convinced them to stop. Big affiliates include loyalty programs, cash back programs, and coupon affiliates, and none of them will use Google because the tools and support simply aren’t there — they need subid tracking and daily transaction files in a specific format available via FTP, not to mention control over the ad process. In CPA all of the risk is on the publisher, and they have no reason to accept that risk unless they think they can drive converting traffic better than some other site; otherwise it makes much more sense for them to stick to CPC. And as Janusz said, affiliate marketing succeeds when affiliates and merchants work together, and affiliates need a lot of support to succeed. Affiliate marketing, when profitable, doesn’t scale; the only exception are some of the ringtone/free ipod type offers run through CPA networks, and the competition in that space is already fierce.
The only reason Google is getting into this space is because they want to get into every aspect of marketing. And any affiliate who would be willing to switch from CJ or LS has already done so and is using AdSense. This move will have absolutely no effect on the big affiliate networks other than investors who don’t understand the space panicking for a couple weeks.
CPA deals have much higher payouts than CPC. Thus action fraud will still exist from the publisher side. Just like they clicked to drive up revenue, they will fill out forms to fake actions, thus drive up revenue. If it is just a lead form and it doesn’t’ require a CC # or anything, there is nothing to stop a publisher from just filling out any information they want (as long as it looks legit – ie real address, etc.)
Also, I’m curious in the way Google plans to track actions. What will the look back window be? If I clicked today, then filled out the form 2/7/14 days from now b/c I go back to the site from the same computer, does Google take credit and charge the Advertiser and pay the Publisher? How are uniques calculated? If done by cookies, at one time can a user fill out the form again and not be considered a duplicate? Are they ever considered a duplicate, or will Google just keep charging the Advertiser each time.
Ok, I just posted a summary of my thoughts (click my name) about this. I agree with Michael’s good overview, have a couple of differing views.
Most importantly, with regards to Michael’s last note about this new text link advertising for the PPA model, why is this not Payperpost II and even worse? I go into length about this on CN.
To your point about the what happened to ValueCLick’s (VCLK) stock price — It was up over 1% yesterday and it’s set to open flat today. So what’s that supposed to prove???
I’d wait to see:
a) a detailed review of feature sets of Google/CJ/Linkshare
b) the reaction from the Webmasterworld types over the next week
c) the reaction from the Webmasterworld types in about three months’ time.
I’ve already signed up; hoping for an invite soon.,
– I have a quote form that would work great; also a purchase form…
hmm – Sounds Great! – Rbowles
Interesing psot about Google Ads.
I found an interesing blog:
QU4TRO is a Blog where you can find posts relating to Technology, New Media, Music and Lifestyle.
http://www.qu4tro.co.uk
I don’t imagine CPA is going to be for everyone. I think higher dollar products will flourish in this space while products that are less expensive and looking for brand awareness will stay with CPC.
On the flip side – and maybe this has already been stated – but I imagine Google’s intention is to blend both CPC and CPA in to the same module. Publishers won’t have to switch; Google will switch for them, serving up both types of ads right next to each other.
@27 – wow, let me guess its your blog.
wat a find………..wanker
This is great for not just sale sites, but those that have objectives such as registration. I’ll be giving it a go I think.
Next in the line would be PPCS pay per closed sales for the Tech crunch dead pool candidates. Ha..
http://www.tekn...ld.blogspot.com
@ Jeff. You might be right about Arrington not understanding affiliate marketing.
But, what if Google manages the risk for the publisher? It wouldn’t take much for them to compare an eCPM from different CPA, CPC and CPM offers and choose the right ad to run to maximize conversions and profit for them and the publisher.
The real reason that CJ, LinkShare, Amazon’s programs haven’t scaled is because they don’t have liquid markets: 1) Most small businesses can’t participate because of specialized knowledge, resources and investment required. 2) Most publishers can’t manage the risk, especially if they can sell high value ads f2f or phone2phone on a CPM basis.
Google COULD bring liquidity into the market by lowering the barrier to entry for advertisers to participate in CPA/PPA advertising and for publishers by choosing the ad that pays them the most, whether it’s CPA, CPM or CPC. We’ll see.
I run a subscription based service with 16,000 members, and you bet I would love to have a Google CPA option as an advrtiser. CPA==ROI, plain and simple. I’d be more than willing to give up a percentage of each transaction to attract the kind of traffic google could generate. CPC is terrible (although better than CPM), it offers little correlation to ROI and I would never consider it as an option.
As for CJ, I have been a publisher with them for years and I think they are absolutely great. They provide truly great service (my contact Jane is awesome) and cater very well to the high end advertisers. But not everyone is large scale, and that is where Google can come in and kick butt if the barriers of entry are low for the advertiser (which they probably will be).
On the 10th post here, Jojo had an EXCELLENT point…
“Or should a search engine spammer use Google cpa?”
That would be my concern… Will the network get flooded with advertisements (both from legitimate and sketchy companies) just looking for traffic boosts and not looking to actually payout???
…but there’s a hibernating elephant in the room…
Because Google is entering the PPA & text-link ads arena so late in the game; they will within the next few years find themselves in another IP quagmire (whether or not they realize it, or even care–i.e. see SueTube)…as there are already a plethora of pending software and biz-method patents (some not yet published); many filed by the innovators and pioneers of, and long-term players in, these fields.
Such legal difficulties could cripple these latest initiatives…rendering moot discussions over just how much effect Google’s entry will have on CJ, LS, and the other aff networks.
Whether Google can compete with other CPA networks will matter to a great extent on two factors: how much the advertisers have to pay for each new sale/lead/registration as compared to the other affiliate networks and how flexible the publisher can be in using the advertiser links. As mentioned above, the affiliate market is much different than the CPC market–it requires greater involvement from both the advertiser and affiliate end to be successful, and simply slapping the Google name on it won’t turn it to gold.
I don’t think Google is going to eat anyone alive—in fact I wouldn’t be surprised if they get out of the CPA business after trying it for a while. It just doesn’t seem to fit their hands-off philosophy.
guys…
my $0.02 worth. google is an incredible search company that’s figured out how to match advertising to search, and then make it look like it’s the game you need to play if you’re going to approach advertising…
if you step back, and take a deep breadth, there might be another approach to advertsing. separate the advertising from search.. in fact, who really gives a damn about search. when i go to a phone book, i’m looking for something, and i have a relationship dorectly with the potential vendor/retailer. however, this is quite passive for the person/vendor looking to get my business.
another approach is to setup a system where the aqdvertiser gets to directly communicate with the potential user, bypassing the whole issue of tying advertising to/with search. while this takes concepts that are similar to other current/past models, there’s nothing in the market right now, that’s close to this. the ability of an advertiser to be able to contact you, directly, based on what you’re typing into your search browser, or directly into the app would be huge for retailers… a quick/dirty research effort into businesses who are using adWords/adSense was pretty revealing, as the vast majority of the responses where hugely positive.
the benefits of a system:
-reduction of fraud
-ability to run multiple types of models
-directly tying into customer
-ability to offer advertisers deep information regarding
users/customers
-user gets paid on a ppc model, which is capped
-much cheaper to create/operate than google
problem issues:
-a new system, requires a great deal of effort/proof
that it’s better than google
-good sized upfront capital outlay prior to generating
significant return
-potential patent obsticles
-user/advertiser acceptance
peace…
CJ in particular is screwed–due mostly to their high enrollment fees and maintenance costs. They’ve been nickle-&-diming (more like hundred-&-thousanding) their people for so long that their advertisers are just salivating for a less-costly alternative (as I have been).
CJ’s reign is over. THE KING IS DEAD!
Google, by lowering the barriers to entry, and ensuring a less-fraud-wrought online ad environment, will benefit both the consumer AND advertiser.
Consumers will be given a greater variety of choices, and businesses will be able to do more with their budgets–i.e. the prayers have been answered for mom & pops, & dorm-room startups.
It is easy for Google to track visitors via assign unique session IDs, etc. to ensure that the PPA has occured. Advertisers are NOT the ones who confirm sales, or newsletter signups, or whatever the defined “action” may be—Google tracks and reports this themselves.
Most folks who think this will lead to just a different kind of fraud aren’t familiar with the technology behind this sort of thing… Check out Google Analytics. It’s a similar visitor tracking tech.
So thanks Google! LONG LIVE THE KING!
I’m not sure this is the end-all to fraud. I used to work for a large PPA affiliate ad network, and we spent millions of dollars and a lot of time trying to fight fraud. PPA fraud is potentially more damaging because you can quickly rack up hundreds of dollars in commissions from just a few actions. If an ad pays $30 for an action (high side of average), all you need to do is fill out a form as fake people 10 times and you’ve got yourself a decent amount of money (if you’re the owner of the site that published the ad), or you’ve just cost your competitor a big headache.
Add into this the larger target of it being a Google service, and this could be a huge problem. It is not particularly difficult to write a bot to fill out forms all day long. Once people have a huge incentive to write this kind of software, it can get really difficult to detect.
Perhaps I read too quickly (apologies if so), but I didn’t see anyone above mention that the beta is only for content sites — eg the adsense network. That’s an important issue — that’s where all the fraud is. Another angle not discussed here in any depth yet is trust — some retailers reluctant to share conversion data w/ G.
Alan
http://www.rimm...man.com/rkgblog
If Panama is now playing catch-up, thoughts on where this puts AdCenter?
Dave: LOL Good one.
Anyone else notice how we don’t even seem to consider MS a competitor anymore?
LOL
Ah, in text ads. Great.
You know, the thing that’s interesting? Every time I read a magazine, my reading will be interrupted by a series of ads for pharmaceutical companies, cars, and jewelry. Do any of those companies claim to have “organizing the world’s information” as their MO, when the bulk of what they do is shove ads into every possible crevice of text?
Lots of people have been waiting on this for a long time including myself. This will be great for the SEM market unlike a previous poster mentioned. This will help clear up the fear into entering the PPC market for the small time guys and will lead to more people in the market looking for help and advice. Just like before you will still have to install tracking code on your confirmation page and budget according to your needs.
This is great news, I didnt realize it was this close to roll out. Man, MSN, and Yahoo are now all of a sudden even further behind.
I wonder if text based ads will make it into gmail?
That will cause alot of concern…
I’ve thought about this for a bit now and I’m not entirely sure that Google’s PPA service is going to work out great. I’ve been in affiliate marketing, am a web publisher using Adsense, and do a bit of SEM. Here are my thoughts on how it will affect all three:
Affiliate Marketing – The affiliate “publisher” is a totally different animal than the CPC publisher. Just because Google opens up the door to smaller publishers to become PPA publishers doesn’t mean that they will have the know how to run PPA. Trust me making the affiliate game work for you is very very difficult.
Adsense – Um….I think every publisher should have the option to choose to have a PPA ad or an Adsense ad up on their site. Without that choice I wholeheartedly expect my daily revenue to drop. Though I’m definitely sure that Google will optimize this out and make their publishers the most money.
SEM – If I was an advertiser why would I need an SEM firm? I can just put in a PPA price and leave it at that. Now if the PPA market gets saturated on Google’s publisher network (which it will, and fast), then SEM will once again be valuable. So after 6 months the effects will be minimal.
In the end truthfully I don’t think this announcement does a whole lot other than raise a few feathers.
@ 37 Dan.
I work for a company that pays out very high cpa’s to publishers (some are well over $100), so I’m very familiar with cpa fraud. Your naive to think that Google has mastered a way to detect all types of cpa fraud using Google Analytics (or anything else).
Interesting news. Now, if they can roll out Google Audio Ads for Podcasts….
>>> WHY THIS WON’T WORK FOR GOOGLE
@ 46
And the competition begins to tremble…
Analytics was an example of the tech…not the execution. And spell check, before you start trying to pick at others’ posts. It’s “you’re”.
Are trackbacks working?
Google’s move has huge potential to explode the PPA market. To a large extent, it’s really Google’s game plan that dictates how big of an effect this wreaks on the networks.
Given their past track record for bringing in small merchants through an efficient, effective do-it-yourself system, there are huge implications. Google is not inventing anything new here- being easiest/best with the widest reach in PPA advertising is where they are can revolutionize the market (same as PPC).
Two areas where I think the shake out occurs:
- CPA Networks. Smaller networks can not compete with the reach that Google has amassed with merchants and publishers. Unfortunately, I think CPA networks become more of a rogue market than it even is today. The ones that play by the rules can’t survive against Google.
- CJ, LinkShare, Performics. These guys really rethink where they add value. In a sense, they become OPMs (outsourced program managers) of the highest level.
I’ve posted all my predictions on my blog:
http://rodgerv....ate-eyez-killa/